Apple (AAPL) smashed
its June quarter and shipped a record 2.5 million Macs. But
September quarter guidance is very low and investors are
crushing the stock -- it's down 11% right now to $148.64.

What's all the fuss about? Apple guided Sept. quarter revenue to
$7.8 billion -- half a billion dollars below the Street's
expectations -- and said gross margins would fall to 31.5% from
the 34.8% Apple posted in the June quarter.

Next up: A big quarter for the iPhone. Apple expects to ship more
iPhones this quarter than ever before -- meaning at least 2.3
million. That shouldn't be hard -- it's
already sold 1 million. And Apple said it plans to start
selling the iPhone in 20 more countries beginning August 22.

5:03 A few points that demonstrate how well Apple is performing.
Better than 24% growth last year. Retail sales up 58% y/y and
store traffic about 32 million, up 10 million y/y. First 6
months: Total rev increased 40% or $4.3 billion.

5:05 19.5% Mac share according to NPD, 25% growth in education.
Sold more Macs to higher ed than to any previous June quarter.
3-4 weeks of Mac channel inventory.

5:06 Music accounted for 33%. Sold 11 million iPods, up 12%,
driven by shuffle and iPod touch. 10% growth in U.S., 15% int'l.
Revenue grew slower than units because of cheap shuffle. (Note:
Sound is flaky. Quicktime stream not doing well.)

5:08 Sorry, missed a bit due to Apple's stream crapping out.

5:09 Did not recognize any iPhone handset revenue sold after
March 6 until made iPhone 2.0 software available. Began
recognizing handset revenue on July 11. Any iPhone handset
revenue recognized during June qtr. relates to iPhones sold
before March 6.

5:11 Launched App store on July 11.

5:11 iPhone and iPod touch users have downloaded more
than 25 million applications.

5:12 More than half of retail Mac sales to customers who have
never owned a Mac before. With an average 211 stores, $6.8
million vs. $5.1 million year ago. $297 mill compared to $184
million a year ago. On track to end Fiscal 2008 with 242 stores.
Look forward to opening more in Germany and Switzerland.

5:14 Outlook. Targeting revenue of about $7.8 billion or approx
25% growth. Off to a great start with iPhone 3G and expect to
sell more iPhones this quarter than any quarter so far. Those
sales will build significant revenue and earnings. Q4 GM expected
31.5% down from 34.8% in June quarter. Decline due to three
factors: 1) Full qtr impact of back to school promotion, 2)
Future product transition, which I can't discuss, 3) One time
bonus that we got in Q3. ("True-up.")

5:18 Lot of folks talking about Apple in emerging markets. Any
color about sales outside the U.S.? Asia Pacific really good Mac
up 53% y/y. Europe growing about 4x market according to IDC,
Japan growing 4-5x market, Asia Pac 2-3x. Some of markets...
several markets in developing areas growing over 50% y/y such as
China, Russia, LatAm, but also saw some of the more markets
growing at over 50% y/y such as France, Germany, Australia.

5:20 Not announced plans for 2009 but as I said in prepared
remarks expect to end '08 with 242 stores.

5:21 Mac going to get back to 4-5 weeks? 570 Best Buy, plan to be
at around 600. 10,300 storefronts globally, up about 1,600
storefronts y/y. Channel inventory still feel 4-5 weeks is
appropriate target.

5:22 Changes in commodity market? LCDs and NAND flash, expect
favorable cost environment. DRAM entering seasonally stronger
demand, increases in this area. Hard drive, optical drive in
supply-demand balance, following historical norms. Sounds like
you guys may rethink about how you're pricing and you want to
drive a lot of volume? Any change in philosophy about margin and
volume? Beyond Sept. quarter -- we're delivering state of the art
products at price points that our competitors can't match. Plan
to continue this strategy while making a reasonable margin, but
not a margin so high we leave an umbrella for our competitors.
One of the things we do is make products that intially cost more
but offer entirely new features. We have some types of
investments like that in front of us right now but can't talk
more. Margins about 30% in fiscal 2009. Very confident in
decisions we're making for the future.

5:27 We get a lot of questions about Steve's health, but would
you mind addressing the situation? Steve loves Apple, he serves
as CEO at pleasure of Apple's board and has no plans to leave.
Steve's health is a private matter.

5:28 Apple TV: Any clue or indication of video rentals? Started
shipping Apple TV in February, pleased with the sales we've had,
but Apple TV remains a hobby as we call it. This business is not
nearly as big as Mac. Continue to invest in it.

5:29 Not specifically break out iPod sales in US vs. Intl.

5:30 iPhone 3G response excellent. Thrilled with what we see. A
number of stockouts, this is a factor of the overwhelming demand.
Very pleased with production ramp. Very pleased with trajectory.
Shipping units as fast as we can, trying to serve demand. Will be
launching about 20 additional countries on August 22, which would
bring total to over 40. Still expect over 70 countries later this
calendar year.

5:32 iPod touch revenue booked as received. Gross margins being
abour 30% in fiscal 2009. Can't get into you what we have in our
new product pipeline because we don't talk about future products.

5:34 We have some investments in front of us where we're going to
be delivering state of the art products at price points that our
competitors can't match. And that's all he can tell us!

5:34 You always have back to school transitions and pricedowns.
Still trying to understand what's different this quarter where in
fact you're going to deliver September results that are higher
than you've guided. We give you guidance that we have reasonable
confidence in achieving. Try to figure out demand, how we can
make stuff, etc.

5:39 No change in our position on cash to share with you today.

5:40 Very comfortable with our pricing.

5:41 What level of discussion with corporate IT who want to fold
in iPhone and Mac into corporate environment? 1/3 of Fortune 500
in iPhone 2.0 beta program. Kraft, First American, Disney,
Genentech., etc. deploying iPhone into enterprise. Oracle (ORCL)
and Salesforce (CRM) building apps.

5:44 Operating margin impact from iPhone launch... what can't be
deferred. We incur opex in engineering, sales and marketing
related to the iPhone currently, while recognizing revenue and
cost over a 2-year period of time. We do have launch expenses to
the iPhone 3G that are built in to Sept. quarter, and that's
included in guidance.

5:47 Anything about health of U.S. consumer built into guidance?
Anything baked into forecast for Q4 that incorporates view of
health of U.S. consumer? We're going to leave economic commentary
to others, but we didn't see any obvious impact in June quarter.
Edu had best June quarter in history. Certainly aware of economic
environment, and we've considered it into our guidance.

5:48 Any problems with iPhone 3G production and supply? Why
wouldn't you have pushed back launch so more people could get it
without so much frustration? Demand has been staggering almost in
every country that we've shipped in. Manu ramp right on schedule,
very pleased with trajectory. Gives us confidence to launch in 20
additional countries in August.

5:50 Inference that you're going to be incrementally more
aggressive with pricing. Shouldn't gross margins be up because of
iPhone plus scale economies? First of all, I wouldn't rule that
in or out. Not going to make comments beyond 2009. With iPhone,
we don't discuss specific product margins. Expect to sell
significantly more iPhones this quarter and in the future. Happy
with margins for new model.

5:52 We think software is key ingredient for mobile experience,
think we're many years ahead of the competition. We welcome any
competition as long as it doesn't step on our IP.

6:01 Feel great about how we're doing in Japan.

6:02 Call finished.

Preview:

Most of the focus on Apple (AAPL) these days is directed at its
new iPhone,
which is mostly (if not totally) sold out
across the country. But today Apple will remind us that it's
still a computer company at heart -- its Q3 numbers, and any
upside, depend largely on the performance of its red-hot
Mac business.

Just as it did
last quarter, Apple's Mac business will be the most important
revenue and growth driver.
iPod growth has slowed to a crawl, and Apple's Q3 iPhone
numbers are already expected to be tiny -- the company was sold
out of phones much of the quarter while it prepped for a July
launch of the new iPhone 3G. We'll also
be paying close attention to Apple's margins -- both for Q3 and
its Q4 guidance -- and any commentary about the economy.